Patch of Oil in Zedillo’s Path

Nothing in Mexico is more explosive than the subject of who controls the national patrimony, the nation’s oil reserves. And before the recent convention of Mexico’s ruling Party of the Institutional Revolution, President Ernesto Zedillo knew there was political opposition to his plan to sell 61 petrochemical plants now run by Pemex, the state oil monopoly. What he didn’t foresee was that the vociferous opposition among the PRI’s rank and file would send such a confusing signal to foreign investors.

At the PRI’s national convention late last month, there was an enthusiastically received proposal to call for a halt to the planned sale of the plants. The proposal never was adopted by the party, but it shook market confidence.

Investors could hardly be blamed for fearing that the PRI, the country’s most powerful political force, was intent on derailing Zedillo’s ambitious national economic reforms. Now Zedillo is vigorously engaged in damage control, both to reassert his own presidential power and to calm financiers in other nations.

Even PRI President Santiago Oate, in trying to clarify the party’s position, perhaps attempted to ease the concern by saying that no political party in the world can tell a government what to do or not do. But the fact remains that the party rank and file clearly and strongly opposes the privatization process, perhaps seeing the reforms as one reason for the PRI’s diminishing hegemony.

Zedillo has dispatched an emissary to New York to soothe investors and let them know that privatization plans remain firmly in place. At home he is likely to argue that the Mexican constitution, which decrees that “oil and its basic derivatives” are federal property, allows him to sell “nonbasic” businesses such as the plants without the approval of the national legislature. If he persuasively demonstrates constitutional authority, he can go ahead with the sales and mend fences later within his party.

Mexican presidents have long used the oil industry to provide inexpensive gasoline and related fuels to build political support. They have at times also used it as a lever to control unions and contracts for party or personal benefit.

Zedillo has sought to move the oil industry toward efficiency and global competitiveness. The PRI proposal was a setback, but one that the president can and should overcome.